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Planning considerations

In this section:

The grains industry at a glance

Figure 4 shows Australian grains industry production trends over the past three decades. A switch from grazing to cropping in the mid 1990s, due to the higher relative profitability of cropping after wool prices fell, brought about a significant increase in land area being used for crop production. This in turn has contributed to higher average grain production since the mid 1990s.

Figure 4 - Australian grains industry production, 1975-76 to 2007-08

Graph illustrating australian grains industry production

Note: Forecasts for 2007-08 are based on the Australian Bureu of Agricultural and Resource Economics (ABARE) March 2007 Australian Commodities report.
Source: ABARE Australian Commodities reports and other reports, various years.

Figures 5 and 6 demonstrate why increasing productivity growth in the grains industry is an essential element of the GRDC's Strategic R&D Plan. In Figure 5 trends in total factor productivity (TFP) and in growers’ terms of trade for broadacre agriculture are compared. TFP for Australian broadacre agriculture rose by 3.5 times between 1953 and 2003. The trend in the growers’ terms of trade declined for about 40 years from 1953. However, since the early 1990s the rate of decline of the terms of trade has been slower, at least for the sector as a whole.

Figure 5 - Total Factor Productivity (TFP) in Australian broadacre agriculture and growers' terms of trade, 1953-2003

Graph illustrating Total Factor Productivity

Source: Mullen, JD & Crean, J 2007, Productivity Growth in Australian Agricuture: Trends, Sources and Performance, Research Report, Australian Farm Institute, Surry Hills, Australia.

Figure 6 shows that the gross value of agricultural production in Australia, in real terms, grew slowly from about $30 billion in 1953 to just under $35 billion in 2003. It also illustrates that about 70 percent of the gross value of agricultural production in 2003 came from various productivity growth sources such as infrastructure and communications, higher quality inputs and new farming practices and technologies from R&D activities. If half of the productivity growth is attributed to domestic R&D, the total value of benefits from domestic R&D can be estimated to be $878 billion (in 2004 dollars) during 1953-2003, which is greater than the investment in public R&D that period.

Figure 6 - The value of productivity growth in the Australian agricultural sector, 1953-2003

Graph illustrating the value of productivity growth in the Australian agricultural sector

Source: Mullen, JD & Crean, J 2007, Productivity Growth in Australian Agricuture: Trends, Sources and Performance, Research Report, Australian Farm Institute, Surry Hills, Australia.

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The GRDC's business environment

The GRDC operates in an ever-changing business environment in the grains industry. The key factors in the GRDC's business environment are shown in Figure 7. The GRDC continually monitors and reviews these factors to identify emerging issues and potential new drivers of change. During the plan period the GRDC will continue to ensure that its strategies are relevant to business conditions and make any necessary adjustments to the Strategic R&D Plan.

Figure 7 - Business environment

Graph illustrating GRDC business environment

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Drivers of change over the next five years

Based on consultations with grain growers, the Australian Government, research partners and other stakeholders, the GRDC has identified the most likely drivers of change in the GRDC's immediate and broader business environments over the next five years. They include grain market characteristics, environmental issues, R&D and delivery, customer expectations and social issues.

Grain market characteristics

Declining terms of trade for growers

Australian grain growers have been facing declining terms of trade (ratio of prices received by growers to prices paid by growers) over the past decades. However, the rate of decline in the terms of trade was lower from 1991 to 2003 in comparison with the previous four decades (Figure 6). It is expected that over the next five years the growers’ terms of trade will continue to decline, albeit at the lower rate established over the past 15 years. The overall decline in terms of trade is being driven by higher costs of fuel, fertiliser and agricultural chemicals and rising land prices.

Need to increase overall productivity growth

Sustained productivity growth has been driving the success of Australia’s agriculture sector and remains essential for international competitiveness. Historically, Australian growers have relied on productivity growth to counter the long-term deterioration in their terms of trade. The lower rate of decline in the terms of trade since the early 1990s, noted above, means that productivity growth is now contributing to real growth in the long-term profitability and competitiveness of the agricultural sector.

However, there is evidence that this advantage has been offset by the slowing of total factor productivity (an indicator of overall productivity) in the past decade, primarily because of farm investments being deferred during the drought years. Over the next five years, increasing the rate of growth in total factor productivity in the grains industry will be essential to maintain growers’ profitability, sustainability and international competitiveness.

Grain market dynamics

The global grain markets are undergoing significant changes. Non-traditional grain exporters, such as Brazil, Argentina, India and Black Sea countries, are emerging as important players. Growth in the biofuels industry in Europe, the United States and South America and the adoption of genetically modified crops in the United States and South America are also having significant impact on the grains industry.

Within Australia, a change in the characteristics of the grains industry is taking place. Western Australia and parts of South Australia are export-oriented, while the eastern states are more focused on domestic markets and feed grains. In the eastern states of Australia there is increasing competition for grains between domestic traders, the livestock industry and the emerging biofuels industry. Any change in wheat export marketing arrangements could also impact on grain market characteristics in Australia.

Environmental issues

Climate change

The combined effects of rising carbon dioxide levels, higher temperatures, changes in evaporation and changes in the mean, variability and intensity of rainfall will have a significant impact on grains production. As unpredictability and changes in temperature and rainfall across Australia are expected to continue, growers’ capacity to manage climate variability and seasonal conditions will become increasingly important. Growers may also seek to reduce their emissions of greenhouse gases such as nitrous oxide, which currently represents 18 percent of all agricultural greenhouse gas emissions.

In order to reduce greenhouse gas emissions, carbon trading markets are also expected to be developed in Australia. Sequestration services through reforestation on non-forested lands are one potential area where growers could see benefits from carbon trading. This may offer an incentive for growers to plant trees and sell the resulting carbon credits to industrial companies, subject to certain eligibility criteria. Cost-effective actions to reduce greenhouse gases from agriculture are expected to have a positive impact on the industry.

Water use efficiency

Managing water stress and increasing water use efficiency will continue to be important drivers of change in Australian agriculture. Over the next five years, water harvesting and tillage systems and drought tolerant crops and pastures will be important for growers’ profitability and sustainability.

Path to market for genetically modified crops

Genetic engineering technologies can enhance the agronomic performance of crops and produce speciality products for a range of food/feed and non-food/ feed markets. Genetically modified (GM) crops have the potential to significantly change the range of crops grown and production systems used by Australian grain growers and thereby increase the sustainability, productivity and profitability of modern agriculture.

In Australia, the path to market for GM food crops is still unclear. This is resulting in a lack of commitment by the Australian grains breeding programs to embrace GM technologies. However, state government moratoria on the growing of GM food crops are expected to end early in the plan period, clearing the way for new market opportunities.

R&D and delivery

Grains R&D funding

It is expected that downward pressure on grains R&D funding will continue over the next five years. This is likely to require rationalisation of grains industry investments, particularly to clarify the roles of public and private investments in basic, strategic and applied research.

Research infrastructure in Australia

Research infrastructure in Australia is limited so there will be a continued need to take advantage of overseas technology and bring it to Australia through effective delivery channels. There is also a possibility that agricultural research capacity at Australian universities will reduce after the introduction of a new research quality framework to govern university funding.

Changing technology

Changes in technology are expected to drive changes in grains R&D over the next five years. New technologies will emerge in a number of research areas, including reverse genetics and nanotechnology.

Changing industry information needs and delivery channels

Private agronomists, accountants and other consultants will play increasingly important roles in interpreting information and providing specific advice to grain growers. There will also be changes in the roles of the internet and print media in the delivery of information.

Customer expectations

Consumer attitude towards food grains

Consumers of food grains are highly discerning, and will remain so over the next five years. Consumer perceptions of GM and functional foods, grain quality and segregation will continue to be critical issues for meeting consumer demand. International customers for wheat and other grains will require consistent quality, supply choice, logistics management, technical support and value.

Traceability

Traceability is an attribute that customers value highly. Customers will want information on all linkages through the supply chain, including information on the quality, cost, standards and consistency of the product, as well as details of all participants in the chain and the ownership of each phase of transportation and other related processes.

Social issues

Changing farm population and workforce structure

Demographic shifts in rural and regional Australia will continue to reduce the number of farms owned by individual growers. The number of share/lease growers is expected to increase, as is the number of large commercial farms. A continuing decline in the number of young people entering farming is expected to lead to an ageing rural workforce and less availability of farm labour. Agriculture will continue to face strong competition for skilled and unskilled labour from the energy and mining sectors.

Farm business management

There will be an increasing need to shift from the conventional management of farming practices to farm business management. Business practices, including managing finances and risk and understanding market requirements, will need to be integrated into whole-of-farm business management. Many growers will need to develop a new set of business skills to maintain their industry capacity.

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Photo of rain gauge

The GRDC's planning assumptions for this Strategic R&D Plan are based on the drivers of change in its business environment over the next five years.

Planning assumptions

The GRDC's planning assumptions for this Strategic R&D Plan are based on the drivers of change in its business environment over the next five years. The Strategic R&D Plan assumes that the following conditions will apply in Australia over the next five years:

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